Chapter 2

2.Barbara owns 40% of the stock of Cassowary Corporation (a C corporation)

and 40% of the stock of Emu Corporation (an S corporation). In the current
year, each corporation has operating income of $120,000 and tax-exempt interest
income of $8,000. Neither corporation pays any dividends during the year.
Discuss
how this information will be reported by the corporations and Barbara for the
year.

Since C corporations are separable tax entities, Cassowary Corporation will report the operating income
and tax-exempt income. An S corporation is a tax reporting entity. Therefore, Barbara will report
ordinary business income of $48000 (120000*40%) and tax-exempt interest income of $3200
($8000*40%) on her individual return.

8.Jane and Ben are married and usually file a joint return. They live in a
separate property state (rather than a community property state). Jane is
a partner in a law firm and typically generates income of $158,000. Ben is a grade
school teacher with wage income of $75,000. The couple has investment income
that is less than their standard deduction. With enactment of the deduction for
qualified business income, the couple is wondering if they should continue to file
as married filing jointly or instead use the married filing separately

In this scenario we can see that Jane's income is more than 50% of Ben's, Filing
a joint return would lead to a lot of tax benefits as the tax would be deducted on
them as One Joint Account. The IRS also recommends married couples to file
jointly. The couple can have advantages this way instead of opting for separate
returns, such as,

 The higher difference in income helps them to have lower tax rates,
Which results to a lot of tax savings or bigger tax refund.
 The couple can also have educational benefits, adoption credit, Child
and Dependent Care Credit etc.,
The difference in their income wouldn't affect the tax benefits they get while
filing joint returns, Hence I would recommend the couple to opt for joint return.

18. Maria and Javier are the equal partners in MarJa, a partnership that is a
qualfied trade or business. In the current year, MarJa had $350,000 of ordinary
income after reporting $500,000 in guaranteed payments to Maria and Javier
for their services to MarJa ($250,000 each).
a. What is Maria’s and Javier’s qualified business income?

a) Maria and Javier's qualified business income is the total of $350,000. The
amount of guaranteed payments, i.e., $500,000 is not included in the qualified
business income. Therefore, their qualified business income is $350,000 and as
they are equal partners, $175,000 each.